Correlation Between Schwab Large and Schwab Target

Can any of the company-specific risk be diversified away by investing in both Schwab Large and Schwab Target at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Schwab Large and Schwab Target into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Schwab Large Cap Growth and Schwab Target 2045, you can compare the effects of market volatilities on Schwab Large and Schwab Target and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Schwab Large with a short position of Schwab Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Large and Schwab Target.

Diversification Opportunities for Schwab Large and Schwab Target

0.51

Correlation Coefficient

Schwab Large  Schwab Target

Very weak diversification

The 3 months correlation between Schwab and Schwab is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Large Cap Growth and Schwab Target 2045 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Target 2045 and Schwab Large is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Schwab Large Cap Growth are associated (or correlated) with Schwab Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Target 2045 has no effect on the direction of Schwab Large i.e., Schwab Large and Schwab Target go up and down completely randomly.

Pair Corralation between Schwab Large and Schwab Target

Assuming the 90 days horizon Schwab Large Cap Growth is expected to generate 1.82 times more return on investment than Schwab Target. However, Schwab Large is 1.82 times more volatile than Schwab Target 2045. It trades about 0.23 of its potential returns per unit of risk. Schwab Target 2045 is currently generating about 0.15 per unit of risk. If you would invest  10,833  in Schwab Large Cap Growth on September 12, 2024 and sell it today you would earn a total of  1,524  from holding Schwab Large Cap Growth or generate 14.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Schwab Large Cap Growth  vs.  Schwab Target 2045

Schwab Large Cap

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Schwab Large Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak technical and fundamental indicators, Schwab Large showed solid returns over the last few months and may actually be approaching a breakup point.

Schwab Target 2045

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Target 2045 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Schwab Target is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schwab Large and Schwab Target

The main advantage of trading using opposite Schwab Large and Schwab Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schwab Large position performs unexpectedly, Schwab Target can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Schwab Target will offset losses from the drop in Schwab Target's long position.

The idea behind Schwab Large Cap Growth and Schwab Target 2045 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.